Gold And Silver Sparkle On Diwali, Post US Elections

Gold appears to be regaining its safe-haven allure and has nearly returned to its 50-day moving average. With the U.S. election over, Gold prices could rise the entire week, gaining momentum from a strong performance last week.

Comex Gold December Futures, the most-active Gold Futures contract on the Comex division of the Nymex settled at $1,730.90, up 3.3% on the week. Comex Silver December Futures settled at $32.599 an ounce, up 5.6% on the week. The US fiscal cliff and geopolitical tensions with Iran (Iranian warplanes fired on US drones last week) only heighten the risk and uncertainty in the markets and are driving safe haven money into Gold.

Macroeconomic imbalances, reflationary policies and geopolitical tensions will drive prices higher in the long-term and Investors with risk-tolerant portfolios should hold the metal to hedge against volatility in other markets. Investors should look at gold as an insurance policy for other financial assets. Gold pays off when stocks, bonds and currencies disappoint and a little regular investment in Gold goes a long way.

The Fiscal Cliff could occur when mandated spending cuts and the expiration of President George W. Bush’s tax cuts occur, unless Congress acts to prevent it. Economists have warned of a recession if it happens. So this is all good for Gold prices, however, bad for the country, its economy and in fact the entire global economy. Demand for gold-backed exchange-traded funds – Gold ETF remains strong. Analysts cite data from Bloomberg showing holdings hit a record high this week, with the top 14 gold ETFs combined having accumulated 2,592 metric tons.

Despite bullion price declines in October, Gold ETF holdings rose throughout the month and continued to rise into November. Investors of Gold ETFs typically have a longer-term holding period, and the increase in Gold holdings may signal good demand for hard assets including bullion. MCX Gold Dec has sharply shot up to Rs. 31,937 on the back of a weakening INR against the US dollar. The USD/INR Nov Futures have shot up to 55.29 up 0.81% from the previous close of 54.83. MCX Silver December traded to high of Rs. 61,585.

Gold may slip on Europe Jitters:
Europe will remain in the spotlight this week for markets and could provide jitters. Although Greece passed another round of austerity measures on Wednesday, as required by institutional lenders to receive more aid, a Bloomberg report from Friday said finance ministers aren’t likely to sign off on fresh loans when they meet Monday.

Citing anonymous sources, the European finance ministers want to spend more time looking at the New Greek legislation. The situation with Greece could get worse, especially if its true that European leaders were waiting until after the U.S. election to take a harder line on Greece. Sharp currency moves in the EUR/USD could impact Gold Prices.

Base Metals may pick up later:
An infrastructure-led recovery with spending brought forward in sectors such as power generation/distribution and the railway network should underpin a pickup in copper demand. However, the timing of any pickup is uncertain, complicated by the country’s leadership transition and the fact that fabricators have yet to receive procurement orders from government ministries.

Economic data is improving in the key consuming nation of China, and Chinese manufacturers are moving from late-cycle destocking to early-cycle restocking. Base Metals should benefit sooner rather than later. Industrial base metals may also remain range-bound toward year-end amid growing concerns about how the US Fiscal Cliff will be handled.

Spain Economy Darkens:
The banking industry’s problems are already complicating Rajoy’s efforts to narrow Spain’s budget deficit and get the economy moving again. The European Commission last week said Rajoy is set to miss his budget goals for the next three years. The Spanish people are experiencing “terrible things and inhumane situations." Prime Minister Mariano Rajoy said he will rush through measures to stem evictions in Spain after a woman committed suicide as officials tried to seize her home.

A bipartisan committee will meet today to draw up plans to reduce the number of people being evicted from their homes as Rajoy tries to control a growing sense of outrage at mortgage foreclosures. The group is set to announce a temporary halt to evictions and incentivize lenders to renegotiate loans and find ways to allow people to remain in their homes, Rajoy said.

Banks, set to benefit from a 100 billion-euro ($127 billion) rescue package that Rajoy requested from the European Union in June, have become the focus of public outrage over foreclosures amid a growing public perception that they use abusive lending practices.

In a Metroscopia poll published yesterday, 91% of respondents said lenders exploit clients’ lack of legal knowledge to insert abusive clauses into mortgage contracts. Rajoy is searching for a formula to help families that have fallen behind on mortgage payments without increasing the strain on lenders trying to clean up 180 billion euros of bad real- estate assets, the legacy of a 10-year building boom.

2013 Budget for Greece meets Approval:
Greek Prime Minister Antonis Samaras garnered the support of enough lawmakers from his three-party coalition to secure approval for the 2013 budget, a plan that aims to unlock bailout funds and avert a financial collapse that could drive the country from the euro. “We’ve taken the second decisive step with even greater unity,” Samaras said. “What we’ll see from now on is recovery and growth.”

The 2013 fiscal plan, which forecasts a deficit of 5.2% of gross domestic product and a sixth year of contraction, is designed to regain the confidence of its euro- area and International Monetary Fund creditors. Euro-area finance ministers are due today to meet to discuss Greek developments as Samaras presses European Union leaders to release a 31.5 billion-euro ($40 billion) bailout tranche. Samaras has pressed for two extra years, until 2016, for Greece to meet deficit-reduction targets imposed by the Troika.

Creditors’ calculations are assuming a two-year extension. The finance chiefs gathering at 5 p.m. in Brussels intend to prevent a 5 billion-euro ($6.4 billion) Greek bill redemption on November 16 from triggering an accidental default, while they’re unlikely to ratify a 31.5 billion-euro payment to Greece that has been frozen since June.